THE NEW YORKER, JULY 21, 2014
51
Treasury Secretary for International
A airs, writes in his new memoir, "The
air was thick with warnings that Born's
ideas would create financial chaos." Yel-
len, then chair of the Council of Eco-
nomic Advisers, was at the meeting, too,
but she was both more skeptical of the
financial markets and more discreet than
Summers, so she didn't say much. At an
annual summer retreat for central bank-
ers in Jackson Hole in 2005, when the
economist Raghuram Rajan, who now
chairs India's central bank, warned about
risks that derivatives posed to the finan-
cial system, Summers mocked his con-
cern as "slightly Luddite."
Last summer, Senator Sherrod Brown,
a Democrat from Ohio, released a letter
co-signed by twenty senators---one in-
dependent and nineteen Democrats, in-
cluding the freshman senator Elizabeth
Warren, from Massachusetts, Sum-
mers's home state---saying that they be-
lieved Janet Yellen would make an excel-
lent Fed chair. Its subtext was that all the
signers, whose votes the Administration
would likely need to get the new Fed
chair confirmed, were prepared to vote
against Summers.
Members of Congress had not for-
gotten the enormous anger about the re-
cession that swept the country. Some of
it was directed at Wall Street, some of it
at the financial deregulation of the pre-
ceding twenty-five years (at the time, it
was hardly noticed), and a great deal of it
at the Fed: a mysterious institution orig-
inally conceived by a group of bankers,
which was now using its power to bail
out the biggest bankers with taxpayer
dollars, despite their recklessness, rather
than help ordinary Americans who were
struggling desperately. "I get it,"William
Dudley, the president of the New York
Fed, told me. "I get why people are upset.
I understand why people think, Was
justice done? Savers are getting less than
pennies on the dollar.There does seem to
be some fundamental unfairness.To save
the financial system, we had to save indi-
vidual entities.That was unfortunate. We
want to be in a situation where we can
allow firms to fail."
The anti-Fed sentiment was neither
liberal nor conservative. Sarah Palin and
Ron and Rand Paul are anti-Fed, and so
is Senator Bernie Sanders, of Vermont, a
self-described democratic socialist. Dave
Brat, the underdog who beat the House
majority leader, Eric Cantor, in a Repub-
lican primary by running to the right of
him, made attacking Wall Street one of
the major themes of his campaign, and
called for an audit of the Fed. In 2011 and
2012, members of the Bay Area Occupy
movement camped out in front of Yellen's
former o ce at the San Francisco Fed.
During the negotiations over Dodd-
Frank, the ranking Republican on the
Senate Banking Committee, Richard
Shelby, of Alabama, a Democrat-turned-
Republican from a state with a long pop-
ulist tradition, and a passionate Fed critic,
walked out, leaving a freshman senator
from Tennessee, Bob Corker, to take his
place as the lead Republican negotiator.
"There was a point in time," Corker told
me, "probably 2009, 2010, when I'd go
home, and if we did a town-hall meeting,
it was an outpouring. It was 'the Fed, the
Fed, the Fed.' It was everything from peo-
ple who were concerned about the debas-
ing of the currency, to the idea that it
wasn't audited, to the idea that it was
opaque, to conspiracy theories." In the
early stages of the 2012 Presidential cam-
paign, Rick Perry, the governor of Texas,
another Democrat-turned-Republican
with deep roots in Southern populism,
told an audience, referring to Bernanke,
"I dunno what y'all would do to him in
Iowa, but we would treat him pretty ugly
down in Texas. Printing more money to
play politics at this particular time in
American history is almost treasonous in
my opinion."
"You won't get me to say the letter was
about Summers," Sherrod
Brown told me. But he did
say that "Wall Street has too
much political power and too
much economic power," and
that his conversations with
Yellen left him assured that
she understood that. A lit-
mus test for Brown and his
allies is whether a govern-
ment economic policymaker is willing to
admit that the leading banks have been
too big to fail, because the government
showed during the crisis that it would bail
the banks out if they took on too much
risk. (Dodd-Frank was supposed to solve
this problem by committing the govern-
ment to policies that would make bank
bailouts unnecessary in the future; an-
other General Accountability O ce re-
port, due out later this month, is expected
to conclude that, as of now, the biggest
banks are still too big to fail---meaning
that, in a crisis brought on by their exces-
sively risky behavior, the Fed would still
be able and willing to perform a rescue for
giant financial institutions.) In her public
speeches, Yellen has used the phrase "too
big to fail," but treated it as a concern the
Fed knows it must address, rather than as
a description of reality. Yet Brown told me
that in a private conversation she had
used the phrase in a less carefully dis-
tanced way.
While Brown was organizing the
letter, two prominent economists who
are close to Yellen---Alan Blinder, the
Princeton economist and a former Fed
governor, and Joseph Stiglitz, a former
head of the Council of Economic Ad-
visers who taught Yellen at Yale and is
now at Columbia---campaigned ar-
dently on her behalf. Yellen's supporters
spoke to prominent economists, includ-
ing Republicans, and to Brown and
other members of the banking commit-
tee. Stiglitz also wrote a Times Op-Ed
piece saying why he thought Summers
should not be Fed chair. Stiglitz told me,
"Where was the soul of the Democratic
Party? Was it about making the world
safe for Goldman Sachs?"
Obama evidently was not willing
or politically able to push through
Summers's nomination. Brad DeLong,
a Berkeley economist and a leading
member of what he called Team Larry,
who posted pro-Summers material on
his blog during this period (in a recent
post, he called Summers
"terrifyingly brilliant"), told
me, "The people from the
Administration should have
gone around to the senators
and said, 'Those were our
mistakes, not Larry's.' The
senators were waiting for a
call from the White House.
That task was never accom-
plished." Meanwhile,Team Janet, unde-
terred by the insult implied by the as-
sumption that she was Obama's second
choice, never rested, although Yellen was
never visibly involved in its activities.
(There is no evidence that Summers and
Yellen ever disagreed personally; Yellen
has respectfully cited him in her work.)
As president of Harvard, Summers had
made a famously impolitic remark about
the small number of prominent women